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NEWS

October 22, 2013

Whistle-Blower Action Proceeds; Post-Firing Complaints to SEC No Bar

A financial planner who alleged that his employment was terminated after he raised concerns as to possible securities law violations at his employer may proceed with a claim under whistle-blower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Ellington v. Giacoumakis , 2013 BL 288136, D. Mass., No. 1:13-cv-11791-RGS, 10/16/13).

Judge Richard Stearns rejected the company's claims that because the financial planner complained to the Securities and Exchange Commission only after he was fired, he does not meet the statutory definition of a Dodd-Frank whistle-blower.

Richard Ellington, a financial adviser, filed this suit against his former employer, New England Investment & Retirement Group Inc. and Nicholas Giacoumakis, the principal and sole shareholder of NEINV. Among NEINV financial products distributed to clients are written reports evaluating securities traded on the national securities exchanges, the court said. As a result, the court said, NEINV is governed by the 1940 Investment Advisors Act. The IAA requires that registered investment companies have a compliance official responsible for IAA compliance.

During his tenure at NEINV, Ellington “came to believe” that the firm was distributing misleading investment reports to existing and prospective clients, the court said.

Ellington broached his concerns with Giacoumakis and then compiled a report detailing the alleged infractions. Ellington submitted his report to the compliance department, which began an investigation. Ultimately, on Aug. 3, 2010, Giacoumakis fired Ellington “ostensibly for emailing confidential NEINV information to his personal account.”

Following his termination, Ellington went to the SEC, and volunteered to assist in an investigation of NEINV, the court said. The SEC “eventually assessed NEINV some $200,000 in civil penalties for willful violations of securities regulations,” the court said.

Ellington then sued NEINV and Giacoumakis, alleging that he was terminated in violation of the Dodd-Frank Act whistle-blower provisions.

Suit Allowed to Continue

The court said that the amended complaint “adequately pleads a retaliation claim under Dodd-Frank,” and denied the defendants’ motion for judgment on the pleadings.

In so ruling, the court said that the gist of the argument made by NEINV and Giacoumakis “hinges on § 78u-6(h)(1)(A) of Dodd-Frank, which prohibits an employer from retaliating against a 'whistleblower.’”

The Act defines whistle-blower as any individual who provides information “ 'relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.’”

Because there is no dispute of fact that Ellington did not provide information to the SEC until after he was terminated, the defendants “insist” that the amended complaint is not viable, citing Asadi v. G.E. Energy (USA) LLC, 720 F.3d 620 (5th Cir.), the court said.

For its part, the court said that it adopted “the SEC’s interpretation of the relevant provisions of Dodd-Frank,” referencing Murray v. UBS Securities LLC, S.D.N.Y., No. 12 Civ. 5914 (JMF), 5/21/13. It is apparent, the court said, that Congress intended that an employee terminated for reporting the specified types of violations to a supervisor or outside compliance officer, “and, ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice.”

Alternatively, the court said, the defendants argue that Dodd-Frank does not apply because Ellington’s allegedly protected conduct took place before the law’s enactment on July 22, 2010.

However, the court said that there is no dispute that after his termination, Ellington gave the SEC a report on NEINV’s alleged violations, assisted the SEC in investigating NEINV, and was the “instigator” of the SEC’s assessment of civil penalties against NENIV, “all of which occurred after Dodd-Frank took effect.”

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